Zillow.com reports that nearly half of Twin Cities homeowners are under water on their mortgages. In other words, they owe more on their house than their home is worth. The first quarter ratio of 46.2 percent was quite a bit worse than the national average of 28.4 percent of homes being under water.

Zillow has been reporting how many homes are under water, or have “negative equity” for a year or more.

Earlier this year Zillow reported that in the final three months of last year 42.3 percent of single-family homes in the Twin Cities had negative equity. Again, that was much worse than the national average of 27 percent.

But only this past March, another real estate number-crunching firm, CoreLogic, reported that for the same fourth quarter period, just 15.9 percent of Minnesota homes were under water with another 5 percent “near” having negative equity. That was better than the U.S. numbers of 23.1 percent and 5 percent, respectively.

So, given the apparently conflicting findings, what’s a Minnesotan to believe?

Zillow certainly knows how to get ink. The website’s latest quarterly report was the subject of front page stories in the Wall Street Journal Monday and the Star Tribune today.

But how accurate are Zillow’s estimates of the market value of a home?

For the Minneapolis St. Paul Metro area Zillow gives its own system an accuracy ranking of just two out of four stars. Zillow labels two stars as “fair;” three as “good;” four stars as “best.”

For all 50 states, Zillow rates its accuracy at four stars, with a median error rate of 12.3 percent.

That means half of Zillow’s home value estimates are within 12.3 percent of the actual selling price. Half of Zillow’s estimates are wrong by more than 12.3 percent.

Zillow’s median error rate for Twin Cities homes is 15.4 percent. That means half of Zillow’s market value estimates are off by more than 15.4 percent. How much money is that? Here’s a gauge: the median sales price of Twin Cities homes in March was $140,000; 15.4 percent of that is $21,560.

The Twin Cities has the third highest median error rate among the top 30 metro areas. Only Detroit, Michigan at 17.2 percent and Kansas City, Missouri at 16.1 percent have a higher median error rate.

Here’s another way to look at Zillow’s numbers.

Zillow says its market value estimates for homes in the Twin Cities are within 10 percent of the actual sale price for only 36 percent of the sale transactions in the area. So, let’s put that in perspective.

In March, the most recent month available, there were 3,154 closed sales in the Twin Cities. By its own reckoning, Zillow’s estimate of the value of those homes was off by more than 10 percent in 64 percent, or 2019 of those homes.

A 10 percent error can add up to a lot of money. The median sales price of a traditional Twin Cities home (one not in foreclosure or a short sale) in March was $192,000. Ten percent of that is $19,200. That amount certainly could make the difference between being under water or not.

Now, here’s the double-whammy:

Despite the depth and duration of the foreclosure crisis, the vast majority of homes are not in foreclosure or up for a short sale. At the same time, nearly two thirds of Zillow’s home value estimates are off by more than 10 percent. The combination of those two facts suggests that Zillow’s numbers for many homes are off by thousands and thousands of dollars.

So, when Zillow reports that 46.2 percent of Twin Cities homeowners are under water, is that a trustworthy number? Does it even stand to reason?

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Thank you for posting this research. As a local agent I find myself putting my market value research up against what clients have pulled up on Zillow quite often. It has always created frustratingly inaccurate impressions of home value and has more than once caused a seller to list too high.